MLB All Stars Enjoy A State Tax-Free Visit To DC

Bryce Harper will welcome fellow All Stars to his home field this week. (Photo by Scott Taetsch/Getty Images)

The Major League Baseball All-Star Game is coming to DC for the first time since 1969, and the District is pumped. As baseball’s best players and some of its biggest contracts come to DC, local businesses are looking to cash in on all the travelers coming from around the country to visit the nation’s capital and this high-profile event. However, the DC Office of Tax and Revenue is shrugging its shoulders.

Sure, DC will earn some revenue from sales, hotel and other tourism taxes, just as every other major city does, but what they would really like to do is tax the players’ income. Washington, DC has an 8.95% income tax rate. Every state and city in the US with an income or earnings tax has a jock tax—the tax on nonresident professional athletes based on the percentage of time they spend playing in a state. The District, however, does not.

This isn’t the result of the DC City Council lacking the foresight to tax these visitors as every other jurisdiction does. In fact, the Council has tried and failed to establish a jock tax multiple times. Rather, it is due to a 45-year old law that granted DC the right to elect its own city council while requiring congressional approval for all laws and budgets passed by said council.

The law, called the District of Columbia Home Rule Act, also prevents the District from imposing income taxes on nonresidents who work there. This is one area of the law where even today you will find overwhelming bipartisan agreement.

How does DC tax law bring our two warring political parties together in harmony? I thought Republicans cared about state and local rights to govern themselves and Democrats never met a tax they didn’t like. The answer is that any tax that DC imposes on nonresidents would cost money for a Congressperson’s constituents, state or both.

If DC were allowed to tax Mike Trout for his two days at All-Star events, he would pay $26,570 in District taxes. Assuming he is a California resident paying their 13.3% tax, playing in DC would not cost him a dime, because he would receive a full tax credit on his California return. Instead, California would foot the bill for his All-Stars appearance. It wouldn’t be a popular position for California representatives to campaign on costing their state money in an effort to be fair to DC.

If Trout were a resident of a lower tax state, such as Arizona, he would only receive a tax credit up to Arizona’s 4.54% income tax, or $13,478, and would be on the hook for the remaining $13,092. So in this case, a DC jock tax would cost both the state and its resident. No Arizona representative would support that.

But what about DC? If nonresidents don’t have to pay DC taxes, are DC residents exempt from taxes in other states? Of course not! That would make too much sense. Let’s assume Bryce Harper is a DC resident (he is not, but play along). If he performed two duty days in California this season, he would owe them $25,680 in taxes. His DC income tax on that money would be $17,281, so he would receive a full credit on his DC return for his CA taxes plus be on the hook for an additional $8,399. DC and its resident would both lose money in this case without any reciprocity from California.

So DC cannot earn tax revenue from players earning income within its jurisdiction and DC loses tax revenue when its residents earn money elsewhere. If only the tax-paying citizens of DC had voting representation in the House or Senate who could fight for tax fairness…but that’s another discussion for another blog not devoted to sports money.